JPMorgan eyes boosting dividends, buybacks as capital piles up

A sign outside the headquarters of JP Morgan Chase & Co in New York, September 19, 2013. REUTERS/Mike Segar

By David Henry and Sweta Singh

(Reuters) - No. 1 U.S. bank JPMorgan Chase & Co (JPM.N) may return more money to shareholders than it earns over the next few years, it forecast on Tuesday, an encouraging sign for investors who have been waiting for richer dividends and share repurchases.

The prediction came in documents posted on JPMorgan's website for its annual investor day, where top executives offered their vision for the four major business lines and financial targets for the broader institution.

Although JPMorgan is sticking to its long-term target of returning 55 percent to 75 percent of net income to shareholders, the bank could pay out as much as 120 percent in the medium term, according to a presentation. That would mean JPMorgan is generating more than enough profit to invest in its businesses and meet regulatory capital requirements, and can even reduce some of that capital.

The new prediction is up from a 65 percent medium-term scenario that JPMorgan offered last year.

"It does feel like we have reached an inflection point for capital," Chief Financial Officer Marianne Lake said at the event.

There is "no good reason" why JPMorgan could not have a capital ratio at the lower end of a targeted range, she added. The bank aims to maintain enough high-quality capital to cover 11 percent to 12.5 percent of its risk-weighted assets.

Big U.S. banks have encountered a slew of new capital requirements in the aftermath of the 2008 financial crisis, many of them implemented over a period of years. They also must get their capital plans approved by the Federal Reserve through an annual stress test, meaning that banks cannot unilaterally decide to increase dividends or share repurchases.

Prior to the crisis, it was not unusual for big banks to distribute all of their earnings to shareholders. JPMorgan, the largest U.S. lender, has managed to stay ahead of capital requirements while increasing earnings and boosting payouts, but not to that level. Last year, it returned $15 billion to shareholders, roughly 61 percent of earnings.

At Tuesday's confab at JPMorgan's headquarters in New York, Chief Executive Officer Jamie Dimon and other top executives mingled with investors, analysts and reporters. It drew hundreds of money managers who got a chance to press managers about a wide range of topics, from geopolitics to expense ratios.

Dimon said he remains confident about the U.S. economy. "The future is very bright," Dimon said, adding that the outlook will be even better if the federal government overhauls corporate taxes, thins out redundant regulation and boosts spending on public infrastructure.

JPMorgan said it plans to spend more this year to grow its credit-card business and stay competitive in an industry that has become increasingly technology-focused.

But even with higher costs, the bank maintained its long-term targets for a cost-to-revenue ratio of 55 percent and for a return on tangible common equity of about 15 percent, signalling management's belief that the investments will pay off.

Dimon said the additional spending is important to continue the company practice of steadily investing in its businesses. He added that about half of the expected increase in reported expenses is due to accounting requirements for additional auto leasing the company is doing in partnership with car manufacturers.

Although executives say JPMorgan is focused on efficiency, they have also pushed back against the idea that they should, for instance, cut branches to get a quick profit boost. They have instead advocated for investing in key businesses, like credit cards, as well as technology that can help JPMorgan lure more customers and keep existing ones happy.

One of its slides characterized its approach to costs as: "Innovate, automate, and eliminate waste."

Innovation was a theme for the day, with displays highlighting JPMorgan's technology bona fides in ATMs, cyber security and "trader experience," among other things.

JPMorgan's shares fell 19 cents to close at $90.62. They have risen about 29 percent since Donald Trump won the U.S. presidential election on Nov. 8.

(Reporting by David Henry in New York and Sweta Singh in Bengaluru; Additional reporting by Dan Freed in New York; Writing by Lauren Tara LaCapra; Editing by Jeffrey Benkoe and Phil Berlowitz)